I looked a few years ago Palantir (NASDAQ: PLt). There was a bit of noise with the huge potential of the company, but I didn’t decide to buy Palantir’s action.

In five years increased 1 576%.

So my decision about the lack of investing means that I missed potentially amazing profits.

But unlike some of the omitted possibilities, I don’t regret it.

First of all, the current valuation of Palantir’s reserves looks humorous to me. Gives price to profit (p/e) of 513. Yes, 513!

But there is another reason why I do not regret my decision to avoid a company when I looked at it for the first time.

Warren Buffett approach

The billionaire investor Warren Buffett often talked about sticking to what you know while investing.

Sometimes he defines this as he will remain in the “circle of competence”. As Buffett sees it, it doesn’t matter how massive your circle of competence is – you will simply identify it and stay in it.

Why does it matter?

Successful investing consists in assessing the potential value of activities and investing for less (preferably, much smaller) than this valuation.

Therefore, placing money in a company that you do not understand is not really investing, but only speculation.

Black box

Part of what Palantir does is in my circle of competence. I understand his target market and in general, I feel that I understand at least part of his product offer.

But to some extent the company is a black box for me. This is true now, as it was true, when I looked at it for the first time years ago.

Sure, there are significant sales opportunities for government customers for the types of Palantir data services. But this is not the only company that wants to build its presence in this space. What makes him stand out? How is this competitive advantage balanced?

I just don’t know. I can read Palantir’s company accounts like anyone else and feel his stunning growth. But I still don’t really understand whether this growth is based on balanced competitive benefits or not.

Although others may have more insight, I cannot understand my own satisfaction if Palantir has a business model that can assist him achieve significant profits in the long term.

Possible warning signal?

Meanwhile, this P/E relationship is simply amazing for me. This is not a tiny company – it has USD 376 billion market capitalization. However, it is currently sold for over 500 times.

Is this a sign of the foam market that will stumble?

Not necessarily. One action can easily oppose wider market trends. What I consider to be discounted Palantir does not necessarily mean that the wider stock market is overstated.

Perhaps others who understand the black palantir business box believe that this really deserves this quote. It has an impressive, sophisticated customer base, which seems to have bought her services firmly.

Still, such a valuation seems humorous to me. I see it at least as a warning signal. This is a useful reminder to stop and think about the valuations of technology companies and shares more generally, considering what to buy or sell this fall.